Apple reported record June-quarter sales, powered by strong consumer demand for last year's iPhone lineup, although growth in its lucrative services business missed Wall Street expectations, as did the company's forecast for the current quarter.
IPhone sales grew 21% in the period, ahead of Wall Street expectations of about 19%, continuing a hot streak for the iPhone 17. Sales of the company's signature product have rallied in the past year after Apple took steps to redesign its software and add a lower-cost option to its smartphone offerings.
Shares fell by more than 7% in after-hours trading, a sign Apple's total revenue of $109.4 billion, which only slightly topped Wall Street's expectation of $108.2 billion, may have disappointed investors. The company also said that its September quarter sales would grow between 9% and 11%, below analyst forecasts of 12%.
The services unit, which includes App store fees, iCloud subscriptions and other revenue, has been among the most reliable profit engines at the company in recent years. Apple executives said foreign-exchange rates lowered its September forecast.
The company's gross profits jumped, thanks to a tariff refund of around $2 billion. Sales for Mac computers also showed surprising strength, as some of those devices have been popular for AI uses.
Apple continued to struggle to meet demand for iPhones, Macs and iPads due to supply constraints, said Kevan Parekh, Apple's chief financial officer, in an interview. The difficulty remains securing enough logic chips, the brain inside Apple's devices, that are made by Taiwan Semiconductor Manufacturing.
"We've seen extraordinary demand this cycle. And the supply chain just hasn't had the same level of flexibility for us to be able to flex up to meet this higher-than-expected demand we're seeing," said Parekh.
Apple shares have been on a tear the past month, surging at a time when other big technology companies have been under siege due to concerns about the AI race.
Investors have come to see Apple as a safer name in the technology sector, given the company's modest capital-spending investments relative to most of its peers in the industry.
There is additional excitement that, finally, Apple appears to have a modern chatbot to compete with ChatGPT, Claude and others. The new Siri AI, to be released this fall, isn't expected to be as impressive as those rivals, technologically speaking. Yet Siri will have the advantage of being built into the device everyone is already carrying, a chatbot layer engineered to work with the personal data they already carry around in their pocket.
Tim Cook, on his last Apple earnings report as chief executive, confronted one of the biggest threats to the sparkling, asset-light business model he built.
In the age of AI hyperscalers, suddenly Apple finds itself waiting in line for key device components, memory and storage chips, the prices of which have quadrupled over the past year and are expected to go higher.
It is a position the iPhone-maker hasn't found itself in since Cook harnessed the company's purchasing power to squeeze rock-bottom costs from suppliers and shift expensive assets from Apple's balance sheet to theirs. That model multiplied the company's valuation 14 times on Cook's watch, to nearly $5 trillion from roughly $350 billion the day he took over for Steve Jobs.
To protect its profit margins, Apple has already raised prices on Macs and iPads as much as 25% for some models. And prices for new iPhone models are expected to rise substantially when they are released in September. A new leasing program for last year's iPhone 17 implies prices for those devices won't be reduced when the successor models are released, unlike in years past.
Thus far Wall Street seems sanguine about the price increases, which in theory could reduce sales by discouraging customers from upgrading. That is perhaps because iPhone buyers aren't as price sensitive, especially when higher costs are spread out over the many months of a smartphone installment plan.
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